Question 1

Junk bonds are also called high-yield bonds.

Accepted Answer

A) True 
 B)False

Question 2

A company with a AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating.

Accepted Answer

A) True 
 B)False

Question 3

Long-term bonds have greater interest rate risk than shorter-term bonds.

Accepted Answer

A) True 
 B)False

Question 4

Which type of value is shown on the firm's balance sheet?

Accepted Answer

A)  book value 
B)  liquidation value 
C)  market value 
D)  intrinsic value

Question 5

A bond's yield to maturity varies from investor to investor because each investor has his or her own required return.

Accepted Answer

A) True 
 B)False

Question 6

Convertible bonds are debt securities that can be converted into a firm's stock at a prespecified price.

Accepted Answer

A) True 
 B)False

Question 7

If a corporation were to choose between issuing a debenture,a mortgage bond,or a subordinated debenture,which would have the highest yield to maturity,everything else equal?

Accepted Answer

A)  the debenture 
B)  the mortgage bond 
C)  the subordinated debenture 
D)  all of the above

Question 8

The par value of a corporate bond indicates the payment that the issuer promises to make to the bondholder at maturity.

Accepted Answer

A) True 
 B)False

Question 9

Graystone bonds have a maturity value of $1,000.The bonds carry a coupon rate of 12 percent.Interest is paid semi-annually.The bonds will mature in nine years.If the current market price is $976.50,
a.what is the yield to maturity on the bond?
b.what is the current yield on the bond?

Accepted Answer

The answer of Graystone bonds have a maturity value of...

Question 10

In an efficient securities market the market value of a security is equal to:

Accepted Answer

A)  its liquidation value. 
B)  its book value. 
C)  its intrinsic value. 
D)  par value.

Question 11

Calculate the value of a bond that is expected to mature in 18 years with a $1,000 face value.The coupon rate is 4%,and the required rate of return is 8%.Interest is paid annually.

Accepted Answer

The answer of Calculate the value of a bond that...

Question 12

If a bond has a market value that is higher than its par value,then the required return on the bond must be less than the bond's coupon rate.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is NOT a definition of yield to maturity?

Accepted Answer

A)  discount rate that equates present value of future cash flows with a bond's price. 
B)  investors' required rate of return on a bond investment. 
C)  return that an investor will earn if they buy the bond for its market price and hold it until maturity. 
D)  discount rate that equates present value of future cash flows with a bond's face value.

Question 14

Podunk Communications bonds mature in 6 1/2 years with a par value of $1,000.They pay a coupon rate of 9% with semi-annual payments.If the required rate of return on these bonds is 11% what is the bond's value?

Accepted Answer

A)  $1,026.73 
B)  $973.76 
C)  $1,022.74 
D)  $908.83

Question 15

Define interest rate risk.How does a bond's level of interest rate risk depend on its maturity?

Accepted Answer

The answer of Define interest rate risk.How does a bond's...

Question 16

A bond with a coupon rate of 8% will also have a yield to maturity of 8%.

Accepted Answer

A) True 
 B)False

Question 17

A bond will sell at a discount (below par value)if

Accepted Answer

A)  the market value of the bond is less than the present value of the discount rate of the bond. 
B)  current market interest rates are moving in the same direction as bond values. 
C)  investor's current required rate of return is above the coupon rate of the bond. 
D)  the economy is booming.

Question 18

A bond will sell at a premium (above par value)if

Accepted Answer

A)  the market value of the bond is greater than the discount rate of the bond. 
B)  investor's current required rate of return is below the coupon rate of the bond. 
C)  current market interest rates are moving in the same direction as bond values. 
D)  the economy is in a recession.

Question 19

If markets were entirely efficient (perfect),which of the following would we conclude?

Accepted Answer

A)  There would be no inflation. 
B)  Book value would be the same as market value. 
C)  No firms would ever default on their bonds. 
D)  Market value and intrinsic value would be the same.

Question 20

A corporate bond has a coupon rate of 9%,a face value of $1,000,a market price of $850,and the bond matures in 15 years.Therefore,the bond's yield to maturity is:

Accepted Answer

A)  9%. 
B)  24%. 
C)  11.1%. 
D)  13.45%.

Exam 7: The Valuation and Characteristics of Bonds

Junk bonds are also called high-yield bonds.

A company with a AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating.

Long-term bonds have greater interest rate risk than shorter-term bonds.

Which type of value is shown on the firm's balance sheet?

A bond's yield to maturity varies from investor to investor because each investor has his or her own required return.

Convertible bonds are debt securities that can be converted into a firm's stock at a prespecified price.

If a corporation were to choose between issuing a debenture,a mortgage bond,or a subordinated debenture,which would have the highest yield to maturity,everything else equal?

The par value of a corporate bond indicates the payment that the issuer promises to make to the bondholder at maturity.

Graystone bonds have a maturity value of $1,000.The bonds carry a coupon rate of 12 percent.Interest is paid semi-annually.The bonds will mature in nine years.If the current market price is $976.50, a.what is the yield to maturity on the bond? b.what is the current yield on the bond?

In an efficient securities market the market value of a security is equal to:

Calculate the value of a bond that is expected to mature in 18 years with a $1,000 face value.The coupon rate is 4%,and the required rate of return is 8%.Interest is paid annually.

If a bond has a market value that is higher than its par value,then the required return on the bond must be less than the bond's coupon rate.

Which of the following is NOT a definition of yield to maturity?

Podunk Communications bonds mature in 6 1/2 years with a par value of $1,000.They pay a coupon rate of 9% with semi-annual payments.If the required rate of return on these bonds is 11% what is the bond's value?

Define interest rate risk.How does a bond's level of interest rate risk depend on its maturity?

A bond with a coupon rate of 8% will also have a yield to maturity of 8%.

A bond will sell at a discount (below par value) if

A bond will sell at a premium (above par value) if

If markets were entirely efficient (perfect) ,which of the following would we conclude?

A corporate bond has a coupon rate of 9%,a face value of $1,000,a market price of $850,and the bond matures in 15 years.Therefore,the bond's yield to maturity is: